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"Asian Tigers" yesterday, "African Lions" today
Pre-pandemic, as investors focused on the growing middle-class story in China, the growing importance of Taiwan on the tech sector, the real estate bubble in Hong Kong, and the growing number of "Crazy Rich Asians" in the region, the world slept on the fast growth happening in Africa. From 2015 to 2019, Africa hosted 10 nations that had GDP growth of over 5% on an annual basis. As more investors poured capital on Asian startups, investors slept on the gradual but accelerating shift in the global economy center from Asia to Africa.

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Before I dig into this "shift" in the global economy center, let's get the elephant out of the room. African economies are starting from a smaller base. It will be easier to experience higher growth rates from a smaller base than from a larger base. With a faster growing population than the G7 and Asian Tigers, the high growth rates look to be guaranteed.

From these perspectives, Africa is an attractive place for business and investment:

  • Geographically, East Africa is close to fast-growing South Asian markets, has great harbors, and it is far from the threat of Iran & West Africa is close to fast-growing Latin American nations, Europe, America, and Canada
  • In terms of human capital, approximately 13% of Africans speak English. Literacy levels have been growing in the continent and according to Macrotrends, nearly 70% of people age 15 and older in sub-Saharan Africa can both read and write with understanding a short simple statement about their everyday life. Other areas of Africa are assumed to have higher literacy rates.
  • Kenya is a world leader in banking
  • East Africa got connected onto the global fiber optic network in 2009.
  • In the World Bank’s “Doing Business” ranking, Kenya has made immense progress from 2015 to 2019. Other African nations have seen similar progress as their governments have been deregulating and becoming investor-friendly over the years

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Despite the high trade and budget deficits, the huge sums of foreign direct investment in Africa from China, European nations, and the US all help these nations grow despite these issues. If you've read my memos on China's Belt & Road Initiative, you'd learn that many of these investments that China makes in Africa are strategic and while they may have little activity today, there's good reason to believe that those infrastructure assets will thrive with activity in the future.

The Bigger Story

The industrial revolution of the 1800s was when the West saw its basic manufacturing capabilities originate. Only after World War 2, those basic manufacturing jobs were then offshored to Japan, Taiwan, South Korea, and Hong Kong thanks to improvements in global transportation and communications. Also, manufacturers wanted to capitalize on the cheap but relatively-educated labor pool in those nations. In the 1980s and 1990s, as China opened itself to the world, those basic manufacturing jobs were then offshored to China for the same reasons (cheap and relatively-educated labor pool).

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Old Photo of a Toyota Factory

As we can see, as the West started seeing wages, living standards, and production costs rise, businesses moved their factories to places where they could find cheap but relatively well-educated labor and investment-friendly governments. As Japan and the other Asian nations saw similar conditions, those factories were then moved to China, where the government was investment-friendly at the time and the labor costs there were cheaper.

As China starts running out of people to move from rural areas to urban areas to provide the cheap labor for the basic manufacturing businesses, businesses are looking for other places to set up their basic manufacturing operations in. Vietnam has been a great place for those businesses but because of its low unemployment rate, businesses aren't willing to raise wages and compete with other businesses to attract labor. Thailand's instability, which has caused the nation to end up with 20 different constitutions throughout its time, has made the nation an unattractive destination for manufacturers. India, Pakistan, Sri Lanka, the Philippines, Indonesia, and Bangladesh look like obvious destinations for basic manufacturing businesses because they're close geographically to China and have an educated workforce but the level of red tape in these nations deter basic manufacturers from moving there.

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_Construction begins on the Pudong waterfront, Shanghai, 1987, BBC

To get a better idea of the issue with red tape, look at Bangladesh. Despite being the center of garments manufacturing, the red tape issue in the country has prevented the country to attracting more diversified manufacturing investment. Some Bangladeshi companies have even moved their factories to Ethiopia because of the red tape issue. Looking at the global “ease of doing business” ranking, the same ranking where I mentioned earlier on Kenya's improvements in the ranking, Bangladesh has been moving down the ranking to near last place.

And for those wondering about Pakistan, the country has been political turmoil for many years. The issues surrounding PM Imran Khan's ousting, led by the US, has resulted in the country being run by Shehbaz Sharif, the brother of Pakistan's most corrupt prime minister, Nawaz Sharif. Unlike Imran Khan, who knew that Pakistan needed to buy energy from Russia despite the sanctions to save his people from freezing in the winter and getting heat exhaustion in the summer, Shehbaz Sharif is forcing the country to align with US interests even if it means that Pakistan endures an energy crisis for a longer period of time.

For the Philippines, there are issues with government corruption. The current president of the Philippines, Ferdinand Marcos, is the son of the most corrupt president in Philippines history. Under Ferdinand Marcos, the Philippines looks to be replicating history as Marcos junior looks to create the next 1MDB, funnel more public money into his travel budget, his participation in the pork barrel scandal of 2003, food shortages, lack of attention to inflationary issues, and a continuation of unjust killings of innocent under a "drug war" program started by his predecessor and biggest political ally, Rodrigo Duterte.

As for Indonesia, red tape continues to haunt the nation.

So if most of China's lower-income peers aren't seen as attractive places to move their basic manufacturing operations to, where do the manufacturers go? The answer: they go to Africa. Bangladeshi companies have been offshoring their factories to Ethiopia. Many businesses have offshored their factories to Ghana, Kenya, Nigeria, Tanzania, etc. That's the bigger story with Africa, and it's a story that's hard to ignore. Djibouti, a nation of immense geopolitical significance, is located at an attractive location within Africa. The port of Djibouti takes in goods that neighboring Ethiopia wants to bring in and also ships out any goods that Ethiopian factories have produced to the rest of the world.

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Looking at a map of Ethiopia, Djibouti, and other neighboring nations, you can see that Djibouti acts as a port for Ethiopia because Ethiopia is landlocked.

With the move of basic manufacturing in Africa, the African economy will be on a trajectory of becoming the next big growth story for the rest of the world. Unlike China, Africa won't have the large gray elephant issue. People will be rushing to build more real estate in the continent. Whatever businesses are already established in the continent, people will want to get a stake in African businesses like how businesses once rushed to get a piece of green energy stocks to hop on the ESG trend. Surprisingly, people's standard of living in the continent are growing fast and with it, there will be more consumption happening in the region. According to McKinsey, almost half of Africa’s people live in countries where GDP growth between 2010 and 2019 exceeded the continent’s average growth rate of 4.2 percent since 2000.

It's important to note that even as the continent shifts away from agriculture and mining and leans more to services and manufacturing, it's important to note that the country is still behind on electricity access and internet access. In 2021, only 43% of Africans had access to electricity and only 40% of Africans had access to the internet.

Looking at India, in 1993, nearly half of the country had access to electricity. Today, nearly everyone in India has access to electricity. It took around two decades for India to expand electricity access to everyone. With the technology we have today, electricity access in Africa could go to near 100% within a decade or two.

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Don't sleep on the African Lions (Ethiopia, Ghana, Kenya, Mozambique, Nigeria, South Africa, Tanzania). Enjoy the beauty of Africa (scroll down to see all the photos)

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Cape Town, South Africa

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Mauritius, hope to an underwater water fall

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A beach in Seychelles

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Coast of Namibia

The End
India Access to electricity - data, chart |
India: Access to electricity, percent of the population: For that indicator, we provide data for India from 1993 to 2021. The average value for India during that period was 72.75 percent with a minimum of 49.81 percent in 1994 and a maximum of 99.57 percent in 2021. The latest value from 2021 is 99.57 percent. For comparison, the world average in 2021 based on 196 countries is 86.41 percent.

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